Property investment is looming as a major battleground at Australia's election later this year.

At issue is the generous tax breaks property investors receive and the Labor opposition's plan to curtail them.

The tax breaks are known as negative gearing - property investors get a tax deduction if their interest bill and their maintenance costs are more than the rent income. The arrangements are similar to those which apply in New Zealand.

Negative gearing is a hugely popular way of investing in property and ensures that just about all investors structure their affairs to make a loss and reduce their tax bill.


Effectively, it's the Government (read other taxpayers) subsidising these investors' property purchases.

It's also a great incentive for investors to buy a house, and this is where the problem lies - these investors are competing with would-be homeowners for properties and pushing prices up.

This is elevating house prices to levels that are unaffordable to young people wanting to get a foothold in the market. In fact, the median house price in Sydney sits at over A$1 million ($1.12 million).

Economist Saul Eastlake says investors have accounted for over half of the money lent to home buyers in the last couple of years, up from 30 per cent 12 years ago.

Enter Bill Shorten, the unpopular and charisma-free opposition leader. Unusually, he has come up with a policy idea.

The would-be Prime Minister wants to ban negative gearing on existing properties but leave it in place for newly-built homes.

Of all the plans floated by policymakers over the past few years, this one would probably be the most effective in letting first home buyers into the market.

Shorten's argument is that by restricting negative gearing to new houses, it will provide an incentive for investors to build new properties, thereby increasing the housing stock.

Banning it for existing properties will take many investors out of the market, thereby dropping prices.

And this is where the policy becomes politically unworkable.

Prime Minister Malcolm Turnbull has responded with an almighty scare campaign, telling homeowners the plan will reduce the value of their home.

"Every homeowner in Australia has a lot to fear from Bill Shorten," he said.

It's a hugely effective line. Yes, we're concerned that house prices are too high. Yes, we wonder how our children will ever be able to afford to live in Sydney. And of course we believe something should be done to make houses more affordable.

As long as it doesn't make our own houses more affordable. We're quite happy with their values where they are, thank you very much.

Against the Labour plan is the "plan" by Malcolm Turnbull's government to do precisely nothing. It's likely that this will end up being a lot more popular than Labor's plan.

Fundamentally Australians are much like New Zealanders when we think about what to do with our money. We are a nation of property investors. Many of us aspire to own a portfolio of investment properties around the suburbs.

We lap up stories about the 26-year-old plumber who already owns 13 properties and how he's done it. (Reporters generally don't follow up a few years later to do the story about how the plumber has over-extended himself and interest rates have risen, tipping him into bankruptcy.)

A plan that would make this more difficult to achieve will be very hard to sell.

The political debate around this has descended to economic models at 10 paces, with each side citing conflicting studies which support their position.

The latest was a report by forecaster BIS Shrapnel purporting to show the Labor plan would wipe A$19 billion from Australia's gross domestic product and push rents up by 10 per cent.

The research, which was paid for by a mysterious private sector benefactor who BIS is refusing to name, was seized on by the Government. However a A$1.9 trillion error in the calculations has somewhat dented its credibility.

We can expect to see a lot more of this nonsense in the lead up to the election.

Directors of the world unite

Australian company directors have had enough. Finally they are hitting back against investors and fund managers who want short-term results from the companies they've invested in, often at the expense of the longer-term growth of the company.

"If you don't like it, take your money elsewhere," said John Brogdon, chief executive of the Australian Institute of Company Directors a few days ago.

Directors are appealing to long-term shareholders to help counter the influence of short-term players. The challenge has been laid down.